Case Studies: Energy Risk
Expanded Utility Hedging
Following an order from its commission, the client had reduced its natural gas hedging program. But based upon more recent market events, the client wanted to propose expansion of its hedging program to mitigate potential price exposure for its customers. It needed to demonstrate the benefits of hedging using quantitative analysis.
Aether provided recommendations for risk management tools and strategy, focusing on short-term, medium-term and long-term hedging. Deliverables included a formal report and a presentation to the utility’s executive risk oversight committee. In its report, Aether summarized emerging trends affecting long-term North American natural gas market, including production trends, producer economics, regulatory actions impacting natural gas demand, and new sources of demand domestically and internationally. Aether’s report also included portfolio risk analysis to illustrate the potential impact of hedging certain thresholds on customer rates, given certain risk tolerance levels.
Energy Risk Management Audit
The client wanted an external advisor to confirm the client’s risk strategies were consistent with its overall risk management objectives. The client also was looking for a third party validation of the adequacy of segregation of duties, internal controls, roles & responsibilities, policies & procedures and compliance in its risk management infrastructure.
Aether reviewed the client’s risk management program, examining rate mechanisms, risk tolerance, risk committee oversight, systems and models, hedging instruments, risk policy & limits, and organizational design. The audit included a review of current modeling and trading systems across the Front, Middle and Back offices. Lastly, Aether assessed the effects of new regulation on the client’s energy trading and risk management practices. Following the delivery of its report, Aether provided a presentation to the senior executive team.